Fry's Electronics Exec Charged With Stealing $65 Million

This story occured while I was taking a little Christmas hiatus, but it's spectacular enough to rehash here.

TWICE: Fry’s VP Arrested For Embezzlement

The merchandising VP of Fry’s Electronics was arrested on charges of embezzling more than $65 million from the chain in an elaborate kickback scheme he used to pay off gambling debts and support a lavish lifestyle.
According to media reports, the Internal Revenue Service has accused Umar Siddiqui of demanding kickbacks from at least five vendors in exchange for placing inflated orders. The payments, which were as much as 31 percent of the cost price of goods, were allegedly hidden in a shell company that paid nearly $18 million to the Venetian Resort Hotel Casino and subsidized a lush lifestyle that included a Ferrari, a penthouse apartment and private flights charted by casinos.
A criminal complaint says Siddiqui convinced Fry’s senior management to allow him to deal directly with vendors in order to save the company commission fees paid to sales reps.

Going into further detail is forensic accountant and fraud expert, Tracy Coenan:

The FraudFiles Blog: $65 million fraud via a shell company scheme

In this case however, the shell company scheme was a little different. The shell company purchased goods at inflated prices from the suppliers, and purchased more goods than needed. The suppliers then split the excess profits with Siddiqui. The kickbacks to Siddiqui allegedly went as high as 31% of the sales price.
Siddiqui was allegedly able to pull off this shell company scheme because he supervised a staff of 120 people who bought merchandise for Fry’s 34 stores in the U.S.
And how did this scheme come to light? Apparently carelessness on the part of Siddiqui. Another executive saw a spreadsheet on his desk which detailed the kickbacks. The evidence was given to the IRS, who looked at Siddiqui’s bank records and found $167.8 million in deposits to the shell company. $65.6 came from 5 suppliers alone.

At the time that the story broke, I got an email from an industry contact who referenced the CE Pro story I had just done, entitled 6 Ways To Profit In 2009:

Hey Lee,
Guess there's a seventh way..
http://www.twice.com/flashVideo/element_id/2140308739/taxid/30414.html


I don't know how common that sort of stuff is now, but used to be a bit ofit on our side of the border.... 31%, Jeez, that's over the top... Storiesfor the book that we can write when we've retired and run away to someuntraceable part of the world...

And the beat goes on.

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PT Barnum Was Right

There really is one born every minute.

Over at FraudFiles Blog, forensic accountant Tracy Coenan's hobby of exposing the fundamental problems with MLM schemes always makes for interesting reading.

Almost as interesting, but far more tragic (in a humorous way) are the comments left by MLM shills that attempt to argue with her logic. Inevitably, they demonstrate a complete inability to think clearly, never mind articulate a coherent point of view. Witness the following debate points left by various MLM clowns from Amway/Quixtar, United First Financial, Primerica, MovaVie, et al. who've visted her site:

covered247 Says: 03 Nov 08 at 2:05 pm

by the way, I bank with Wachovia and they offer me $25 for every customer that I refer (recruit) to open an account with them…….hmmmmmmmmm guess the banks are Pyramid schems also. I’ve also noticed that the only one that makes all the money at my JOB is the CEO at my company, while the pions do all the hard work

Sean Says: 23 May 08 at 7:35 pm
Just one quick question, I’ve studied alot of fortune 500 companies, MLM’s, and so for. Every one of them is set up the same exact way. The guy at the top makes the most money.

Mone't Says: 21 Oct 08 at 3:38 pm

HEY SOMEONE HAS TO SERVE ME MY FRY’S RIGHT? LOL
BTW YOUR TELLING ME YOU DONT FORK MONEY OVER AT WORK? TAXES!! LOL OVER 400 A MONTH FOR MOST. ? LOL YOU OWN A BUSINESS RIGHT OW MUCH DID IT COST YOU? HOW MUCH ARE YOU “SHELLING OUT ” THIS IS RIDICULOUS.

Really, you could spend all day cataloguing boneheaded comments like that. Ms. Coenan has far more patience than I do, to actually respond politely to all the idiot comments left on her site.

It's amazing how many sockpuppets rely on ad hominems and syllogisms, yet can't spell them.

I've got a question: if all these schemes are such gateways to riches, where are all the MLM millionaires? Not the criminals who started the ball rolling, where are the people who built their fortune in one of these "business opportunities?"

That's easy, they don't exist.

As I commented on her site, I had a family member who was a lifelong rainbow chaser in MLM schemes. At family gatherings they fronted all the time about how great they were doing, and endlessly attempted to recruit.

When they passed away, I had to sort through their personal documents, much of which needed to be shredded as they were just old statements that weren’t relevant to the estate.

The only thing sadder than the staggering collection of “Overdue Account - Final Notice” credit card letters was the collection of years of monthly downline statements. On a good month they were pulling in $50-150 from whichever scheme they were mixed up in at the time, and spending 2-3x that or more on the mandatory product purchases.

That's a pretty sad testament of your life to leave behind, if you ask me.

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Having fun at the expense of MLM promoters

When it comes to MLM's, mostly I ignore them. There's plenty of other sites that debunk them, and this blog is generally more focused on poking fun at corporate foolishness rather than outright fraud.

That said, a comment by some anonymous idiot in response to one of Tracy Coenan's anti-MLM posts on her FraudFiles blog was so compelling in it's idiocy that I felt it was worth bringing attention to.

Is Shop to Earn a scam or a legitimate business?(NOT edited for spelling, grammar, coherence or stupidity)

"Anonymous Idiot": if you got burned doing a MLM than that is your problem . i am sorry for you. but i believe that in order to be successful you have TO DO IT> walt disney was rejected over and over and over again about his dream of mickey mouse and then one “sucker” as you all would say took a “chance” same thing with the author of the harriet potter series. rejected over and over again. i know that MLM is not for everyone and i respect that some people just dont get them. I am right now unsubscribing to this blog because i no LONGER care waht you think.

I always get a kick out of MLM idiots who bring up the names of people like Walt Disney, Thomas Edison, or JK Rowling, and how much rejection and doubt they had to face before they made it big.

It's a sad effort to share reflected glory, but it falls short, because there's a difference:

What do MLM'ers create? Nothing.

What do MLM'ers own? Nothing.

What value do MLM'ers really offer customers? None.

Where's the MLM'ers better mouse trap? They don't have one.

At the bottom line, they're all just membership schemes where one schlub gives money to another schlub and tries to get some other schlub to give him money as well. It's a house of cards. Those of us who do things and create things and own things can see that, plain as day. If someone can't he really should keep his day job, at least he doesn't have to pay them to come to work every day.

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Midwest Airline Pilots Mad As Hell, Not Going To Take It Anymore

Forensic Accountant Tracy Coenan has a brief tirade about the futility of the rally held by the union for Midwest Airlines' pilots.

Midwest Airlines pilots hold rally… Why?

In addition to all of this, Midwest wants the pilots to take wage cuts of between 45% and 65%. I don’t blame the pilots and their union for fighting this wage cut and the layoffs, but what’s the alternative? If Midwest can’t create a financial situation in which they at least break even, they go out of business. I realize that pilots are being expected to go from salaries in the $100,000 range, down to $30,000 to $40,000. Who wants to do that? No one. But what’s the alternative from the standpoint of the company?
So what is going to be achieved by rallying and making negative comments about the company? Nothing, as I see it. I still respect the pilots’ rights to do it. I just don’t think that it’s going to accomplish anything. The business model of U.S. airlines is no longer viable.

Let me just say right off the bat that I have little respect for airlines. In my opinion, the only stock position you should have in an airline is short. And we've all heard the old saw about how the best way to become a millionaire is to become a billionaire and open an airline. Ba-DUM-bum!

Let's face it, you'd have to look long and hard to find an industry that whines more, delivers poorer shareholder value, and suckles on government-doled corporate welfare harder than the airlines. As I've said before, if tomorrow some genius invented a Star-Trek styled teleport device for moving people and cargo instantaneously and cheaply through space, the very next day, airline lobbyists would be hitting up the government for big fat subsidies and tax breaks "in order to remain competitive."

With that out of the way, I would say to Ms. Coenan that having the pilots express their displeasure is reason enough in itself. Negativity and criticism, like short selling, is a critical tool in giving feedback to public companies. Getting airline management to deliver value to shareholders is akin to pushing a rope, but why should they collect paychecks for achieving nothing without being publicly excoriated for their errors?

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If You Can't Take The Heat, Stay Off The Internet

Forensic accountant and anti-fraud crusader Tracy Coenan has yet another post mocking the attorney for MLM scheme Shop To Earn. You remember, the one who was threatening legal action against bloggers for criticising the program?

Fraudfiles Blog: How NOT to handle criticism: Shop To Earn and Shop To Earth

Of course, the blogosphere erupted, which is about the worst thing that could happen for Shop to Earn.
Look, it is inanely stupid to attack a critic by threatening to sue them. Because if they have discovered the fatal flaw in your product, then others have as well and you darn well better know what is going on in your prospects mind.
And they answer the objection….
The folks at Shop To Earn Who are Responding to Criticism about a perceived flaw in their product by threatening a lawsuit aren’t thinking right.. if you’ve got a good product, good testimonials and a killer guarantee, then the “white noise” of criticism shouldn’t bother you.
On the other hand, if you are a scammer, then you might be bothered that someone has discovered you.

This seems like a good time to bring up an important principle:

Winners don't publicly acknowledge detractors.

That may seem like a bold statement, but at the heart of it, it's very true. If you or the product you sell has value, you let that value speak for itself. In any endeavor, there's going to be people who criticize you for it. In fact, one sign that you've begun to enjoy success is the hate mail you get or the angry comments that get posted to your blog. It comes with the territory. If you can't handle it, maybe you should re-evaluate your business model.

If, as a successful person, you do choose to respond to detractors, it is with class, dignity, and the power of what you bring to the table speaking for you. Contrast that attitude with the whining, name calling, and sundry logical fallacies employed by the MLM dupes that clog the comments section of Ms. Coenan's blog with inane arguments. She obviously has far more patience than I do, to humor them so.

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MLM Sics Lawyer On Bloggers

Forensic accountant and fraud busting blogger Tracy Coenen has fired a return salvo in a brewing dispute with the attorney for MLM company Shop To Earn.

Fraud Files Blog: Shop To Earn lawyer bullying bloggers

It’s clear what ShopToEarn is trying to do: They are trying to silence critics of their multi-level marketing program. A couple of weeks ago, Gerald Nehra sent a similar letter to another blogger who wrote about his opinion of this MLM. It seems as if they’re trying to use scare tactics to stop people from writing about their opinions of companies.

But a clear message was sent in the case of Usana Health Sciences versus Barry Minkow and the Fraud Discovery Institute. People are allowed to analyze and critique companies, their business plans, and their programs. The key is in being clear about what is fact and what is opinion. Facts should be true and verifiable, and opinions should be clearly defined as such.

ShopToEarn isn’t going to bully me into not talking about their program. We have the right of free speech in America, which means I’m permitted to give my opinion about Shop To Earn, even if that opinion is negative. I’m allowed to discuss the company and its pay plan. I’m allowed to say that I think it’s not a program people should get into.

I don't pay a lot of attention to the MLM thing, since I've got other interests, but the one thing I've noticed about the interactions of MLM supporters with bloggers is the absolute inability of the followers to ignore criticism. If (or more like when) a personal finance blogger makes a negative comment about an MLM company, legions of dupes descend on the comments section, posting a cornucopia of logical fallacies: syllogisms, ad hoc arguments, and specious appeals to authority. Maybe I'm just being mean, but if these people actually had a business to run, and were busy making money, they wouldn't have the time to sit on the Internet all day like metaphorical poo-flinging chimpanzees.

All of which might seem to be beside the point to this particular story, where a new MLM on the block has lawyered up and threatened bloggers with dire legal consequences for stating their opinion. However, the principal remains: if your company actually has value to offer, you can point to it in response to your critics. On the other hand, if all you have is a house of cards, and you fear the slightest breeze might knock it down, the temptation to start throwing legal threats around to silence critics is overwhelming.

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Timminco Suing Short Seller For Libel

Forensic Accountant and professional fraudbuster Tracy Coenan has a blog post about legal action Canadian metallurgical company Timminco has taken against a fund manager who has publicly called them out.

Fund manager being sued for libel

Timminco Limited is suing fund manager Ravi Sood and his firm Lawrence Asset Management because of the following statement made by Sood on Business News Network in April:
"There is no evidence that they have any sort of proprietary technology. There is no evidence that they can actually deliver on their claims."
...
So basically, Timminco needs to put up or shut up. Don’t be such babies about someone criticizing your claimed technology and claimed capabilities when none of it has been proven. Was Sood incorrect when he said the technology hasn’t been proven? I think not. It seems he was right on point with that

It's seldom a good sign when companies immediately lawyer up in the face of investor skepticism. As the saying goes, "where there's smoke, there's fire." Some of the companies that Tracy mentions who've had a history of suing critics, such as Biovail and Overstock.com also have a history of financial under performance.

It will be interesting to see how Timminco vs. Lawrence Asset Management plays out, both in court and in the press.

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